barnimages.com

The excitement we derive from the announcement of our favourite music artist coming to our country to perform is one we have probably all experienced. After the announcement, you immediately check whether you are able to go, if the venue is nearby, which of your friends would be willing to join, and how much the tickets cost. While searching for all the information, you listen to the music of the particular artist and are looking forward to an evening filled with that music. Due to the early excitement for the concert, failing to buy a ticket when ticket sale starts is a huge disappointment for many of us. Pop and rock concerts have become more popular than ever and the demand for these concerts is enormous. Unfortunately, there is limited supply. As in the classic demand and supply model, it is possible to increase the price if demand exceeds supply and that is exactly what is currently happening in this market. A lot of people benefit from music fans’ high willingness to pay, by offering tickets for sold-out concerts online with a huge profit margin. Last year, people paid €1760 to see Adele perform in Amsterdam, while the original price was only €124. In the UK and The Netherlands there is no regulation for secondary ticketing, and lots of music fans are outraged by the fact that ‘ticket touts’ are thus able to charge a price that high. What is exactly going on in the market for concert tickets and is there a problem the government should engage in?

The marketplace

First of all, it is important to understand the marketplace for concert tickets, to begin with the supply. In many European countries, North America, and Australia, the market is dominated by Live Nation’s subsidiary Ticketmaster. Ticketmaster is a primary ticket outlet that sells tickets for their clients’ concerts. Besides Ticketmaster, a few small parties are active in the market as well. These parties are mostly small venues that sell the tickets for concerts at their own music hall. Ticketmaster, therefore, has sufficient market power and has more than once considered to sell concert tickets by online auctions. The reason why the company has not implemented the auctions yet is still a bit vague, since auctions would have brought prices closer to actual market prices and would definitely have increased Ticketmaster’s revenues as well. It is often thought that the monopolistic company does not implement auctions because they can increase their profits more by providing a platform for secondary ticketing, whereby they will earn revenues from both the original and the second-hand sale.

The secondary ticketing platform brings us to the demand side of the market. As mentioned before, the demand for concert tickets has grown substantially, and music fans are willing to pay a really high price to attend their favourite artist’s concert. A concert is often seen as a once-in-a-lifetime experience and also contains emotional value, which could be considered priceless. The emotional value varies per person, and some people are willing to pay ten times the original price, because they think the experience is worth it. These differences in willingness to pay lead to profitable secondary ticketing.

Chances for arbitrage

Usurers see a chance for arbitrage if they can buy concert tickets for the original price and sell them for a much higher price on platforms such as TicketSwap and Ticketsnow.com. The existence of these platforms is not the problem at all, since you could have bought a concert ticket and due to circumstances are no longer able to go and want to get rid of your ticket. It is the fact that arbitrators misuse the facility that is undesirable. It is difficult to trace whether people are buying tickets for themselves or for resale, and therefore it is hard to combat. The fact that, for example, Ticketsnow.com is one of Live Nation’s subsidiaries makes it even harder to understand. Ticketmaster states that they just created such a platform to make sure their customers buy real tickets instead of being cheated by people who sell tickets they do not have, but in the meantime, they are making profit with what seems classic supply and demand.

The role of Live Nation in secondary ticketing has been examined several times and research shows that a conflict of interests is not the case. The Dutch Authority for Consumers & Markets (ACM) did not find sufficient evidence for any wrongs by Ticketmaster, Seatwave, Mojo, or Live Nation and states that the high prices are only caused by scarcity and popularity. And so the problem remains: the authorities state the problem is caused by demand itself, and that there is nothing they can do about it.

Possible solutions

More and more music artists become aware of the fact that some of their fans are not able to attend their concerts because of budget constraints and therefore want to fight the high prices themselves. Personalisation of concert tickets is an often used action to prevent arbitrators from buying tickets they are not going to use themselves. On for example Radiohead’s request, the tickets for their 2016-world tour were only sold by name. The British band wanted to give all fans equal chances for buying a ticket. Each customer could therefore buy a maximum of two tickets by name and for a predetermined price. The downside of this arrangement is that people who turn out to be unable to go cannot get rid of their ticket anymore, and it becomes more difficult for groups to get tickets for everyone who would like to join.

Discontent fans in the UK want the government to intervene. They ask for consumer protection concerning secondary ticketing, since that turns out to be effective in other countries such as Australia and Belgium. In the Netherlands, there has actually been a legislative proposal for such regulation, but the Senate still has to decide on whether to accept it. What the Australian and Belgian government have decided on, is a sort of maximum price. On secondary markets, concert tickets may only be sold for the original price plus a 10% bonus. People can now resell their ticket if they are unable to go themselves, and the 10%-margin covers transfer costs. If the secondary ticket price exceeds this maximum, music fans can recover the amount they paid too much from the seller. In case of rejection to recover, the seller will face a lawsuit or penalty. In Australia and Belgium, purchasing tickets simply for the profits of reselling them decreased.

So why have governments facing this problem not implemented this arrangement yet? Simply because some politicians argue that resellers are not doing anything wrong. What we see is a very good example of supply and demand, whereby prices increase due to scarcity. Music fans decide for themselves that they want to pay an above-average price for a concert, and the seller is not to blame for one another’s willingness to pay. However, the extraordinary high prices seem to be unfair, but as long as people are willing to spend much more money on a concert ticket, the only thing we see is an increase in producer surplus, a decrease in consumer surplus, but no form of deadweight loss.